Smith and the Subsidy Myth Makers

The following is a letter we have today sent to the Director General of the BBC. The issue is extremely important given the negotiations that are about to start on possible devolution of further powers. Unless the widespread misapprehension south of the Border that Scotland is a subsidy junkie is corrected, Scotland’s strength in the negotiations will be greatly weakened.

Dear Sir

On 19th September 2014, Robert Peston, BBC Economics Editor, stated the following:

“The big question about the Prime Minister’s plan to hand more control over taxes, spending and welfare to the four nations is how far this would end the subsidy of Scotland, Wales and Northern Ireland by England, and especially by London and the South East.”

This is a clear statement that Scotland is subsidised by the rest of the UK. The statement is factually wrong.

As we now show, Scotland has actually heavily subsidised the rest of the UK over the period since the introduction of the Barnett formula.

To examine whether an area is being subsidised or not by the rest of the country, one has to look at revenues and expenditures both in the area in question, and in the rest of the country. The determination of whether an area is being subsidised or not is actually not simple: for example, if expenditure is higher than revenue in an area, that does not necessarily mean it is being subsidised – because all areas commonly run deficits, (which are ultimately funded by borrowing). The fact that one area has higher public expenditure than another area does not necessarily mean it is being subsidised – as what it is contributing by way of revenue might be greater.

The acid test of whether an area is being subsidised or not is: suppose that area had not been part of the overall country, then would the rest of the country now be better or worse off? If the rest of the country would be better off, then it has indeed been subsidising the area in question.

On this test, and taking a starting point of 1980, round about when the Barnett formula was introduced, the position is very clear as regards whether the rest of the UK has subsidised Scotland or vice versa. If Scotland had become independent in 1980, and if it had at that point taken over a population share of UK debt, had enjoyed the same level of public expenditure on services now devolved as was funded by Barnett, had experienced the same levels of public expenditure on non-devolved services, (including a population share of services like defence, foreign affairs etc.), then Scotland today would have been at least £150 billion better off: and the rest of the UK would have been worse off by the same amount. In other words, under the Barnett formula, Scotland has subsidised the rest of the UK by at least £150 billion.

The relevant calculation of the subsidy is set out in the attached spreadsheet: which was provided to the Finance Committee of the Scottish Parliament at their request, (May, 2014). Also attached is a note accompanying the spreadsheet which was also provided to the Finance Committee. A more accessible discussion of the issues involved in this calculation is also attached: this consists of sections 6 and 7 of our paper “Issues surrounding the sharing of UK debt post independence”, published by the Jimmy Reid Foundation, January, 2014.

In the light of the above, the statement made by Peston amounts to “serious factual errors”, and is in clear breach of the commitment to truth and accuracy in the BBC’s editorial guidelines. In line with paragraph 3.4.26, we take it that you will move to correct this mistake quickly, clearly, and appropriately. We look forward to hearing how you propose to do this.

Great piece, but if Nick Robinson isn’t held to account by the BBC what chance do we have of the revered Robert Peston being rebuked? Still, it’s all part of the process of ‘holding feet to the fire’, and we would do well to familiarise ourselves with the basics above. The difficulty is that the MSM doesn’t want to hear any counter narrative to the well embedded tropes around independence, one of them being that rUK subsidises Scotland. The glib and distorted ‘you get £1400 more per head’ is what we are all meant to accept as evidence of this, but all we can do is counter these untruths with a robust explanation of why it is a false assertion.

I fear that the BBC are untouchable as part of the establishment. This is very bad as we are supposed to live in a democratic country. Maybe if they lose 1.6 million licence holders their chums at Westminster will bail them out too.

Yep, if they lost all those licence holders, they would be bailed out. Even if nobody anywhere watched or listened to any BBC broadcasts, visited their website, bought their DVDs or magazines or even paid the propaganda tax, the government would still find a way to keep that dinosaur going at the taxpayer’s expense. It’s too important to the British Establishment to be allowed to die.

Please create new links to the spreadsheets. These current ones with “blueyonder” urls lead to 404 errors. It would be great to see the figures. I’ve been hearing the subsidised Scotland argument for far too long.

It would be interesting to know how many of us have cancelled the licence………..any ideas how we could arrange a simple way of counting?
Could Bella run a counter link and we could all tweet to advise of the link……..might draw readers and donations?

If you’ve cancelled your TV tax, be aware that TV Licensing (TVL) aka Capita to whom the BBC outsourced collection of the TV license fee to, have NO legal right to enter your property (“implied right of access”) and can only eventually do so if a Sheriff has granted a search warrant.

At this point, accompanied by police officers, Crapita can search your house for evidence that you watch or record live TV as it is broadcast. Playing videogames or watching DVDs/Blurays on your no longer connected to an aerial TV is not illegal.

There are many, many clips on YouTube of TVL employees being sent packing on the doorstep by people who obey the letter of the law and do not watch or record live TV as it is broadcast.

As TV is mostly rubbish, you can safely watch almost any programme via catchup services such as 4OD, BBC iPlayer, etc, for free. You’ll eventually lose the urge to watch television. I did.

I watched this report live.As with the BT advertisement ,I thought this had to be a parody.Incredulously watching in disbelief as each utterance of complete nonsense was reported as fact.
Disgraceful,unsourced, amateur& biassed .Can’t wait for the explanation.

Great letter, thanks so much. I agree that I don’t hold out much hope of any action. As to the links, I’ve been able to use your links, and then on to the downloads with no issues at all, using my HTC ONE X through a Vodafone mobile WiFi device a dongle.

This basic info was lacking throughout the entire campaign. I had to find these figures for myself. On the doors it was clear most ‘No’s believed Scotland was subsidised….300 years of brainwashing with an intensive period of 2 years of speed hating by our lying msm had worked too well. People such as these truly could not believe that Scotland actually is a rich country and a net contributor to the jailer uk state. When you look around our country and see the impoverishment, its not hard to understand how easy it has been for our lmperial masters to enslave half our population with bbc/msm lies.

Eh! NO we shouldn’t. all energy should be put into campaigning in Scotland. Complaining to the BBC is no different from telling a bully he’s hitting you.
The BBC staff know what they are doing it’s their job.

“Complaining to the BBC is no different from telling a bully he’s hitting you.” I love this! (I cancelled my tv, again.) We *can* write to the Smith Commission, however, and demand publication of (an internationally audited if necessary) full sets of accounts for every nation in the Union. They won’t want to, but it’ll be hard to refuse!

Thanks for this. I was riveted when you reported this at WFI Perth and it’s great to have it to read over and grapple with in my own time. Was bored silly/terrified when my line manager at work spouted economics at me – I couldn’t get it. but now am retired would give it another go to try and understand.

Since women do have a keen interest in making ends meet, and are natural economists, I have been wondering if one way forward for local WFI groups is to become better educated on economics using stuff like this to be able to spout back at Naysayers, and continue the process of education and politicisation that got us to 45%.

For too long men have been able to talk down women with a superficial understanding of money. But I think women have a natural affinity for understanding the deeper dynamics of economy, and I think this a latent talent we should develop in the coming fight.

Hello, I was at Perth too and particularly enjoyed Margaret’s piece. I absolutely agree that informing ourselves on the economics is the way forward. It would be so helpful if Margaret could put together something that could be used by all our local groups, it was very hard to counter people’s negative perception of Scotland’s wealth and ability to prosper independently. Some cast iron facts on subjects like the above, the value of the oil and renewable sector, whiskey revenue, income tax etc would be invaluable.

Of course, the BBC and the news media that make up the UK Establishment, all, at the direct behest of the UK Government have been pushing this crumby line to the point of rUK delusion as well as having the desired effect of directly lying to the Scottish people. Now, when their disgraceful purdah-breaking ‘VOWS’ have to be met, it is the squealing of utter derision from their misinformed rUK that puts them in between ‘the rock and a hard place’.

I think the Cuthbert’s approach to this situation is spot-on, whether the information and facts are read by the ‘powers that be’ or, as is usual, ignored – them facts are on the table for the world and its aunty to read for themselves. Feet to the fire indeed.

Will Lord Smith ignore it all too – that’s the richter-scale measurement to come.

It is of course too late to close the stable door after the referendum has run. It may be better to leave the London media in ignorance while the Smith commission is deliberating, as they may, in their ignorance, advocate cutting “those ungrateful subsidy junky Scots” off from London’s benevolence! I.e. full fiscal autonomy.

No, I disagree. There are already considerable forces in the shadows motivated against us having FFA. Professor Alan Trench, for instance, who gave evidence to Holyrood’s Finance Committee earlier this year.

If we want FFA via Smith or any other route, we are going to have to fight for this ourselves.

Google up Trench and look at the minutes of his evidence to Holyrood and study it.

The BBC must represent the truth to be un-biase and fair.
The facts that an incorrect statement was made before a referendum is shocking.
The people involved should loose their job and a retraction should be made by the BBC.

Great work but I doubt that it will have any impact on the BBC. They seem to have adopted the attitude that they don’t give a toss how many people complain. They just sit back and smugly tell complainers that they have acted impartially.

A good few comments here about ‘should we complain to the BBC or not ?, isn’t it just a waste of time ?’

My take – you should complain. It doesn’t matter that you may not get a satisfactory reply, or that it takes up too much time and it’s depressing. The point is that without complaints, the BBC have no case to answer.

Think of it like the AV vote in 2011. 70% of people voted against it but how many people in the UK actually want to change the electoral system ? Probably many more than the 30% that voted Yes. But because this was put forward by the Lib Dems and because AV is not a great system it proved unpopular.

The consequence of that No vote is that the UK establishment have absolutely no reason to offer electoral changes again because the people of the UK have said a clear No. So think about the consequence of NOT complaining.

By not complaining to the BBC then we have fallen at the first hurdle that they have set up. Their remit is to make the complaint process as time consuming and drawn out as possible, putting most people off immediately. It’s like Insurance company call centres, in the first phone call to make a claim, they will say ‘you’re not covered’ – it may be a lie, but if it immediately puts off 10% of customers from making a claim, then it’s financially worthwhile.

So the choice is to moan and do nothing about it, or you can complain with the satisfaction that your objection, even though it may not be replied to properly, is in itself disrupting the BBC machine.

It costs money in man-hours to read and reply to complaints and that hurts the BBC in their pocket. The BBC are also horrific at dealing with FOI requests, so I’d suggest you do that also.

The BBC do not want to answer complaints, FOI requests nor publish details on complaints, non-licence fee payer numbers etc – as negative press hurts them. It seems clear then the answer is to do exactly that.

It beats me where they get their information from. Is there no investigation done when one of these so called experts have something to spout. Take Sir Ian Woods statement on North Sea oil. 2 minutes on google would have shown he made an entirely different statement in his report to WM. Further investigation would have told you his company own a Fracking company in Canada who just happen to have applied for the license to extract shale gas in Scotland. Why did the BBC not question him on this instead of giving him free ain’t time. Impartial.. I don’t think so. Shameful more like.

1. An independent Scotland could not have developed and sustained a financial services industry as big as it is today

2. An independent Scotland – presumably with its own currency and visa regime – would have had a smaller tourism industry, because of fewer visitors from the rest of the UK and abroad.

3. An independent Scotland – with a strong, petroleum-driven currency – would have had trouble sustaining other export industries

4. An independent Scotland would also have had a harder time negotiating a better deal for itself when speaking with the EU, or in other trade and international pacts.

It is all very well to say that the oil would have turned Scotland into Norway, but the fact remains that since peaking in 1999, British oil and gas production has been in a steady and steep decline while Norway’s has more-or-less held steady. Summed over that period, Norway has produced about twice as much oil and gas as the UK, and continues to produce about three times as much today. A more instructive example might be Holland, whose oil-driven economic malaise even earned its own moniker – “Dutch Disease”.

It is also interesting that the line has been drawn at 1980, when oil production was picking up steam. What does the subsidy situation look like before them? This union has, after all, lasted for over 3 centuries, and might yet endure for another few. Oil has less than 4 decades of history behind it, and might be gone in another 4.

Finally, I find it instructive that the English have believed (apparently erroneously, at least for the last few decades) that they have been subsidizing the Scots, yet a popular movement to break up the Union has never gathered steam on the English side. The first inkling the Scots get that they might be standing on their own feet, they want to be off.

Obviously, if you are creating a counterfactual scenario dependent on a big change happening 35 years ago, the state of that counterfactual world will be subject to a lot of extrapolation and guesswork.

The troll-like dismissal of argument without too much fact is coming from you 🙂

You mentioned Denmark’s tourism industry. It has about 8 million visitors from outside Denmark every year, Scotland has over 9 million. I would argue that a separate currency and visa regime to the rest of the UK would make this number go down, not up. Unless Scotland joined the Euro and Schengen.

Similarly, you mentioned Switzerland’s finance sector. Switzerland’s banking assets are about 500% of Swiss GDP. The assets of Scottish banks are about 1200% of Scottish GDP. Switzerland has a long history of financial prudence and their secrecy laws to … ahem … bank on. What is Scotland’s USP?

It is entirely possible that Scotland would have had the best of all worlds: better than Norway’s husbanding of its oil resources (since Scotland has less), more than Swiss prudence when it came to banking (since the Scottish sector is bigger), better tourism promotion and development than any other comparably sized and situated country has managed. And at the same time, Scotland will avoid all of the problems: for example, Norways’s schools, which rank near the bottom in the OECD; Denmark’s overweening state sector, Switzerland’s antipathy to immigration (because Scotland needs more immigration to offset the ageing population).

2. Why? I’m not sure I see any logic to that statement. Scotland is a wonderful place to visit regardless of how we are governed. I think we would have had more tourists because we would have been better able to market scotland abroad.

3. Hasn’t done Norway any harm…

4. Why? The deals Scotland gets as part of the UK are not necessarily the best deal for scotland. Fishery policy being an example. If scotland were independent we would be more powerful in Europe when we worked with the rest of the UK in areas we agreed upon – rather than having very little say as we do at the moment.

1 and 2: yeah I saw above and there is no reasoned explanation for your assertion.

3. Norway may well be more expensive but people there also have significantly higher incomes and more disposable income after taxes and cost if living are factored in. Seems to work well for them…

Look, the analysis in the spreadsheet is factually what has happened, therefore the conclusion has to be that Scotland has massively subsidised the rest of the UK since 1980 and probably before then too. This isn’t reported on the BBC.

The points you raised above are just speculation – rather negative speculation.

I suspect that tourism in Scotland would have been rather more successful.

1. Direct representation for Brand Scotland, with participation in international sport and cultural events.
2. More direct flights, rather than most international visitors arriving through Heathrow.

As for the other points, Scotland would have been able to compete, and no-one can say how successful or unsuccessful it would have been. Perhaps we would have seen a low business tax environment such as Ireland.

With a successful economy, perhaps more people would have stayed, instead of emigrated.
There are so many variables.

The real difference over the years is impossible to figure out, but common sense says that countries with large natural resources and relatively small populations can do pretty well.

The figures below are the latest official estimates of the tax raised in each of the four home countries to the end of the 2012/13 financial year. These figures should not be treated as exact to the last million because there are difficulties in allocating revenue to particular parts of the UK, for example, with corporation tax, but they are broadly indicative of what each country collects in tax. I give two sets of figures to show the differences when oil and gas is allocated on a geographical and a population basis.

Compare this with public spending for each of three small home countries in the calendar year 2013 (I was unable to find expenditure figures for the financial year but they would be little different) :

NB differences between tax raised and money spent are based on Table 1 figures which give the most favourable interpretation of Scotland’s tax position.

The three smaller countries are accumulating debt at a much greater rate than England. In addition, small countries which go independent would find raising the money to meet their overspends would be much more expensive than the cost of financing the debt as part of the UK

Even tonight, the BBC reported the new property transaction tax as another example of how “Most Scots will pay less tax than the rest of the UK” There was no recognition that this might be because our properties are worth less, that there has been a principled decision taken to make the most expensive property transactions pay more tax or that the rUK has reduced the block grant to the Scottish Government as a result of the new tax powers. The BBC has no credibility whatsoever now in Scotland and the sooner we devolve broadcasting to Scotland the better. Then we can make sure we have a truly unbiased and independent public broadcast service.

as you can see with the ‘alternative’ viewpoints from MM and Robert Henderson the figures can easily be refuted by deliberate reinterpretations or ‘counterfactual scenarios’ (whatever that is) to smoke-and-mirror the whole issue. – you watch the bbc do just that!. What we pay to westminster is basically irrelevant to the argument. What we actually need is to play them at their own game, use the simple ‘basket-of-groceries’ approach. Do a simple balance of accounts for Scotland showing clearly that the country, if independent, is a going concern with a surplus – ie showing taxes raised from all industries, expenditure on capital projects, borrowings, pensions etc. Present it as a ‘mindmap’ against similar small nations accounts denmark, sweden, ireland etc. Over time the economic argument of stand-alone scotland will be won in the minds of the people and laid to rest – the issues then become simply arguments for democracy and powers. One thing though, all these small nations (bar irelannd) have standard tax rates of 50% – so what – that in itself maybe a vote winner in socialist scotland.

Given this has been the case for a number of years, surely if the UK are so desperate to find a compromise to full Independence, they should consider devolving all powers, fiscal including gas and oil also a devolved Scotland.
Scottish armed forces to be deployed by a Scottish government and removal of nuclear weapons, submarines inclusive of nuclear power stations to be decommissioned, Also no need for Scottish government answerable to the house of lords.
Then all nations contribute to a joint UK fund (pool of cash surplus or deficit to be published for all UK government and public to view).

The work of the Cuthberts on these matters has been invaluable. Two points to note here. Some will come back with the counter-claim: why start at 1980? (Dr. John McLaren of the CPPR at Glasgow University is one of many who make this point.) If we had the data to go back to the Treaty of Union, maybe that would have shown we are indeed subsidy junkies they will say.

The important response here is not that there is no data and that there is no reason to think thus, but rather to point out the huge deception perpetrated on the Scottish public by the UK government in the 1970s. I’m referring to McCrone of course. The key thing here is not that the report was kept confidential, which is the norm (though Sir Nick Macpherson’s Treasury briefing on the currency this year stayed confidential for about two days). The key thing is that the UK government said the opposite to the report, said the SNP were talking crap on the oil, in order to block what they knew would be a huge swing to the SNP if the substance of the report was publicised; a swing to independence which could only have been stopped, if at all, by something like a Scottish Oil Fund. North Sea Oil is a giant mis-sold investment and should be treated as such in any negotiations between a fiscally autonomous Scottish government and the UK govt on debt share etc.

The second point to note is this. Unionists will point to the GERS (unfortunate acronym!) figures for this year which show a higher fiscal deficit, as % of GDP, for Scotland compared to rUK and say that, like the boy who cried wolf, their subsidy junkie claims have at last come true. And indeed we are going to go further and further in the red, if the Institute of Fiscal Studies is to be believed. In fact the whole No campaign economic basis, the ‘union dividend’ was that England would happily pay ever larger subsidies to Scotland if we vote no (something everyone on this website knew was false and is about to be proved so).

But of course the GERS calculations include a £5-6billion debt repayment from Scotland to the UK, they assume that the balance of liabilities taking into account UK debt etc is Scotland owes £150billion. But once you take into account the mis-sold investment compensation, then as the Cuthbert’s show, the debt is the other way round, leaving a fiscally autonomous Scotland in a very healthy fiscal position. That, at any rate, should be the negotiating stance of the SNP if the outcome we must all hope for- hung parliament, SNP not UKIP with balance of power, comes to pass in May. If it doesn’t, we are going to be well and truly hammered I fear.

Complaining to the BBC is a wholly futile exercise as they rigidly refuise to accept that they are fallible. Not only is the process difficult but the response is always the same.

Just when I decided to withold my TV licence fee the cunning B——- informed me that as I had attained 75 I was no longer required to pay it !

There is no doubt that the cost of living is high in Norway and I mentioned this to a young Norwegian friend who entertained us on a fleeting visit to Oslo two years ago. She smiled and said that this was a constant complaint, particularly from British visitors. She continued,

“Most Norwegian people appear to accept this and recognise that they do also have a much higher standard of living than you have in the UK and far fewer class distinctions. I believe that we are a much more cohesive society”.

I complained to the BBC about the same issue and eventually got a reply which repeated the same myth and ignored my point! Better idea to go to the top though and raise it as publically as possible because this is a crucial issue. Good luck. ..

It will make no difference what so ever, the BBC is controlled by Westminster,
the only way to deal with the BBC is to gain independence, and kick the BBC out
of our country once and for all, they are not our friends, they are in fact the enemy
of the people of Scotland.

Anybody thought of using some sort of FOI request to get official figures that support this argument? Not sure which figures would be best, but if people could get further numbers from the ‘establishment’ themselves, it would make the argument even stronger! I see that the calculations attached were provided to the Finance Committee of the Scottish Parliament, but I wonder if some Westminster figures would back it up even further.

Just a brief comment on the economic side of an issue that ought to be self evident but is rarely publicly acknowledged. When Scots move south in greater numbers than English and others move north to work/settle it should be borne in mind that this unequal movement results in a form of subsidy as the cost of upbringing/education/training has been borne by the residents in their home country but the wealth then produced is credited to the latter. This, of course, is also the case with any adult immigrant population and the richest, best developed countries benefit at the expense of less developed nations with aid packages providing poor compensation for the loss of skilled personnel. I hope, therefore, that the economic policies of the Scottish government will soon be able to put a stop to this ‘hidden’ subsidy. Better still, encourage sufficient economic development that those who had to leave Scotland to find work feel inclined to return home and generate wealth that will compensate for the social cost of their upbringing/education.